Rational Leaders and Risky Decisions

Rationality is one of the fundamental assumptions in the social sciences. Mainstream economists treat people and firms as rational utility-maximizers, living in an imperfect world (Becker 1976). Although rational utility maximization is still an important assumption in economics, behavioral economists have increasingly questioned this optimal rationality assumption and introduced psychological insights in examining people’s decisions under risks (Mullainathan and Thaler 2001; Tomer 2007). ¹ In international relations, realism and liberalism assume that states and their leaders are rational in making decisions to maximize their relative or absolute gains. Constructivism challenges this presumed foundation and emphasizes the role of identity, norms, and ideas in constituting states’ interests as well as the intersubjectivity among states (for the debate between rationalism and constructivism, see Katzenstein, Keohane, and Krasner 1999). Challenging the mainstream international relations theory that assumes optimal rationality, this book integrates neoclassical realism with prospect theory and introduces a psychological model in the study of risk-taking behavior in Asian security.